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After the Centre told Food Corporation of India to restrict its purchase of grains from states recklessly offering bonuses on the minimum support price (MSP) to farmers, Rajasthan has decided to discontinue the dole for wheat purchase from the next rabi marketing season (2015-16). However, Madhya Pradesh, another BJP-ruled state, has asked the Centre to reconsider its move.

States’ bonuses artificially increase the procurement price and creates inflation-inducing shortages in the open market. Higher procurement by FCI also adds to the Centre’s subsidy bill.

Because of bonus announced by Rajasthan and Madhya Pradesh in the last few years, FCI’s wheat procurement from these states has risen. The two states’ agencies also procured grain from bordering districts in Punjab, Haryana and UP.

While Chhattisgarh since the 2012-13 kharif marketing season has offered a bonus of Rs 270 a quintal over the paddy MSPs, MP had announced a bonus of R150 for the current rabi marketing season. Bonuses tend to be around 10-12% of the MSPs.

The food ministry has told states: “FCI, in consultation with the Union food and public distribution department, will decide how much wheat or rice stocks it should acquire in a particular season, and restrict its central pool procurement to that extent, leaving the rest of the surplus stock to be disposed of by the state government, at its own risk and cost.”

The ministry added: “Such declaration of bonus by the state government distorts the market of the concerned commodity and drives private sector buyers out of the market in the state. This also generates possibilities for malpractices.”

Due to the bonus factor, wheat procurement in Madhya Pradesh has risen to more than 7.1 million tonnes in the current season from 6.3 million tonnes in the previous year, while in Rajasthan, purchase of the grain has risen to more than 2.1 million tonnes from 1.2 million tonnes in the previous year. Similarly, paddy procurement has seen a sharp increase in the last few seasons in Chhattisgarh thanks to the bonus offered by the state to farmers. Concerned over this practice, the Union food ministry has said: “The state government would be responsible for the disposal of any surplus quantity procured in the state over and above the required quantity and bear the financial burden in that regard.”

With the food security law being implemented, the Centre's food subsidy bill is expected to be Rs 1.34 lakh crore in FY15, compared with Rs